Will Jesus Christ return in an election year?
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New Comment
Top Manifold user Semiotic Rivalry said on Twitter that he knows the top Yes holders, that they are very smart, and that the Time Value of Money hypothesis is part of (but not the whole) story. The other part has to do with how Polymarket structures rewards for traders who provide liquidity.
4Several people have spent hundreds of dollars betting yes, which is a lot of money to spend for the memes.
there are a nontrivial number of people who would regularly spend a few hundred dollars for the memes.
Yep. Meme NFTs are an existence proof of such people.
https://en.wikipedia.org/wiki/List_of_most_expensive_non-fungible_tokens
This is probably well-known at this point, but the $6 million item is not the duct-taped banana itself, but the right to display the duct-taped banana. That may not make it any more or less sensible, though.
[The Memes] Maybe the "Yes" people are buying "Yes" for the lulz. It's kinda fun to tell people that you bet that Jesus Christ would return this year!
Maybe you mean this expansively, but it doesn't ring true to me as stated because my main guess for many / most bettors would be more serious: they're "manifesting" or "hyperstitioning"--or more generally, they think there's some good effect from nudging other peoples's sense of what is other peoples's investment in 2nd-coming worlds.
I thought about this a bit more, and I'm worried that this is going to be a long-running problem for the reliability of prediction markets for low-probability events.
Most of the problems we currently observe seem like "teething issues" that can be solved with higher liquidity, lower transaction costs, and better design (for example, by having bets denominated in S&P 500 or other stock portfolios rather than $s). But if you should understand "yes" predictions for many of those markets as an implicit bet on differing variances of time value of money in the future, it might be hard to construct a good design that gets around these issues to allow the markets to reflect true probabilities, especially for low-probability events.
(I'm optimistic that it's possible, unlike some other issues, but this one seems thornier than most).
for example, by having bets denominated in S&P 500 or other stock portfolios rather than $s
Bets should be denominated in the risk-free rate. Prediction markets should invest traders' money into T-bills and pay back the winnings plus interest.
I believe that should be a good enough incentive to make prediction markets a good investment if you can find positive-EV bets that aren't perfectly correlated with equities (or other risky assets).
(For Polymarket the situation is a bit more complicated because it uses crypto.)
I think in an ideal world we'd have prediction markets structured around several different levels of investment risk, so that people with different levels of investment risk tolerance can make bets (and we might also observe fascinating differences if the odds diverge, eg if AGI probabilities are massively different between S&P 500 bets and T-bills bets, for example).
I believe the correct way to do this, at least in theory, is to simply have bets denominated in the risk-free rate—and if anyone wants more risk, they can use leverage to simultaneously invest in equities and prediction markets.
Right now I don't know if it's possible to use margin loans to invest in prediction markets.
Wouldn't higher liquidity and lower transaction costs sort this out? Say you have some money tied up in "No, Jesus will not return this year", but you really want to bet on some other thing. If transaction costs were completely zero then, even if you have your entire net worth tied up in "No Jesus" bets you could still go to a bank, point out you have this more-or-less guaranteed payout on the Jesus market, and you want to borrow against it or sell it to the bank. Then you have money now to spend. This would not in any serious way shift the prices of the "Jesus will return" market because that market is of essentially zero size compared to the size of the banks that will be loaning against or buying the "No" bets.
With low enough transaction costs the time value of money is the same across the whole economy, so buying "yes" shares in Jesus would be competing against a load of other equivalent trades in every other part of the economy. I think selling shares for cash would be one of these, you are expecting loads of people to suddenly want to sell assets for cash in the future, so selling your assets for cash now so you can buy more assets later makes sense.
The comment above may open a Flood of Jesus-Backed Securities and Jesus-Leveraged Loans. Heavens!
Update: edited numbers, earlier one was incorrect.
IMO in real world examples (not meme examples like this religious one) tail risk will often dominate the price calculation, not time value. Time value seems relevant here only because the tail risk is zero. (Both buyer and seller agree that probability of yes on this market is zero)
Let’s say actual probability of some event is 3% yes and both parties agree on this. It still could be rational for a larger investor to buy no and a small investor to buy yes at 3.5% for example. Insurance market is analogous to this, it is possible for both the insurance buyer and seller to be rational at the same time because there is transfer of tail risk. The only person who can rationally accept a 3.5% chance of a $1B portfolio going to zero is someone who owns over $10B. (Assuming a utility function that makes sense for a human being) So it’s the largest investors and ultimately federal banks who absorb most of the tail risk of society.
Also ofcourse not everyone is rational when it comes to avoiding taking on tail risk, 2008 financial crisis is an example of this. Beyond a point if federal banks can’t absorb the tail risk they diffuse the losses to everyone.
I’m guessing the actual reason you’re interested in this is because you want prediction markets on existential questions, and there too the actual question is who absorbs the tail risk of society on behalf of everyone else.
P.S. In markets that are not low probability, variance of asset price (not just time value) will matter when constructing optimal portfolio. So sharpe ratio is a better metric to study than expected value. In general I guess people without financial background are not used to thinking about variance risk and tail risk.
reflect true probabilities, especially for low-probability events
Polymarket could consider at least being explicit about that limitation and disallow wagers beyond 99% like Kalshi and Manifold currently do:
This means that the Jesus Christ market is quite interesting! You could make it even more interesting by replacing it with "This Market Will Resolve No At The End Of 2025": then it would be purely a market on how much Polymarket traders will want money later in the year.
It's unclear how this market would resolve. I think you meant something more like a market on "2+2=5"?
The market named "This Market Will Resolve No At The End Of 2025" will resolve to No at the end of 2025. Like it says in its title. What's unclear about this?
They (and initially I) read it as a question: "True or false: this market will resolve No at the end of 2025?"
The True Believers hypothesis rings false because that would be a frankly ridiculous belief to hold. Sometimes people profess ridiculous things, but very few of them put their money where their mouth is on prediction markets. [1]
- I’ve seen some pretty mispriced markets. At one point in 2019, PredictIt had Andrew Yang at 16% to win the Democratic presidential primary. And in 2020, Donald Trump was about 16% to become president even after he had lost the election. But the sorts of people who bet on prediction markets are not the sorts of fundamentalist Christians who think that Jesus Christ has a high chance of returning this year.
yes, no one would put a large amount of money (say, $10,000) on let's say a 1-year time horizon, "joe biden going to prison", "barack obama going to prison", "nancy pelosi, bill clinton, and hillary clinton going to prison", "trump being put in office prior to the 2024 election", and if someone did make such a bet, they wouldn't be motivated by listening to a christian minister who regularly makes political / religious prophecies. surely no one would do that.
i don't know why anyone who posts on a forum devoted to outright fringe beliefs and atypical personality traits (i say with all love and kindness, not to say that any of us are bad or incorrect for these beliefs, merely that they are objectively abnormal) is going to come out and make bold claims that there exists no such weirdo who is willing to do X for Y reasons.
the main point about the time value of money is interesting enough on it's own, but the interesting, nerd-crack explanation is probably just not true. there are probably just crazy people who bet on the return of jesus christ.
The True Believers hypothesis rings false because that would be a frankly ridiculous belief to hold.
Also, if Jesus Christ does return in 2025, we'd probably stop using money and you'd never actually profit off of the bet.
This hypothesis was also proposed in 1998 on a different (play money) prediction market and the galaxy-brained trade succeeded for some in 2002.
1I came back thinking again about this and I really struggle to see how it can be a great trade.
Your theory as far as I understood it is that this is a sort of one year option betting on liquidity constraint of the traders on polymarket.
I say option in the sense that you are burning through something to hold a right. In option theory that's called theta : the derivative of the option value to time. If you are long the option your theta is negative and you are losing money just by holding the right. In this case the holder of the yes is short theta (yeah the term is unlogicaly overloaded) in the sense that as the year progresses the annualised earning from the holder of no is better and better. If you can buy a no in december for .97 you're making a great trade because you would be earning (100/97)% for a month which is 44% annualized.
So on a first order rationality (just considering it as a loan) the value would be decreasing until then with the equation linking the value of the yes so that it equates the yield you can lock with a same expiration TBill. (It should rationaly be more - as people have pointed out - because you hold a more important counterparty risk and have liquidity problems).
As of now a 1 year TBill is about 4.0% annualized which is really more than what a current 97.3 yes for 9 months holding would pay you (3.6%).
So as of now you might say : ah the holder of the no should have better opportunities (tbills are more liquid and have better liquidity) eleswhere so they should be selling their no (thus rising the yes) and buying tbills instead. Realistically obviously a change of .4% annualized on 10k is 40$ so not worth the hassle (and you could actually not get the full 10k out at the same yield because of liquidity).
This is the baseline I would take to think about the time value of money here. And according to this model the time value of money would be directly influenced by the interest rates of treasuries with another effect accounting for the people having put some money here to wait.
The first effect if you wanted to trade it you should rationnaly just buy (leveraged) yield spreads and stuff like that.
If you want to bet on the other effect I struggle to see what is your edge ? It was probably not a good rational choice to put money into this even at 4% earlier this year. So you are betting that their behaviour is gonna be ah now I can trade other stuffs let me remove these no. But what is your expected payoff from this effect and what makes you confident this payoff is positive ?
In summary of this trade :
- You are holding theta "burning your hands" as people say
- In a very illiquid market where you can't readily exit
- You have a counterpart risk
- And you are exposed unwillingly (unless you hedged it) to the treasury yield changes (so far this is not detrimental because your counterpart are underpaying for their "bonds" anyway)
- I struggle to see where the edge lie ?
Would be happy to discuss as it is very possible (20/30%) I have made an understanding mistake somewhere as my knowledge of prediction market and their payoff is very weak.
I suspect that many people in the rationalist community have a blind spot about prediction markets, and see them as some kind of cooperative effort to make true predictions.
Instead, from the financial perspective, they are zero-sum games, and the best players play accordingly. If making the correct prediction is the winning move, so be it. If it is something else, that works, too.
I suspect that anonymous prediction markets (where people cannot get famous as superforecasters, only either gain or lose money) would make even better predictions that the current ones where many people have a conflict of interest.
2Curated. To the extent that we want to raise the sanity waterline, or otherwise improve society's ability to converge on true beliefs, it's important to understand the weaknesses of existing infrastructure. Being unable to reliably translate a prediction market's pricing directly into implied odds of an outcome seems like a pretty substantial weakness. (Note that I'm not sure how much I believe the linked tweet; nonetheless I observe that the odds sure did seem mispriced and the provided explanation seems sufficient to cause some mispricings sometimes.) "Acceptance is the first step," and all that.
Maybe not super relevant to this discussion but multi million dollar markets have been getting incorrectly resolved on Polymarket on a routine basis. There was one market about a Ukraine minerals deal that resolved to YES even though no minerals deal happened:
https://finance.yahoo.com/news/polymarket-faces-backlash-7m-ukraine-010306627.html
https://x.com/Domahhhh/status/1905258165777596812
These false resolutions didn't happen because Polymarket overrode its consensus-based resoluton mechanism, but because that mechanism itself is susceptible to large stakeholder manipulation plus voter misinformation campaigns. As for Polymarket having a lot of reputation to lose, yeah it does. And it has been losing it. I doubt that the specific market mentioned would become a target for a false resolution, it would be too brazen to attempt such a scam there. However, the fact that such a thing is possible, makes any investment in the platform orders of magnitude more risky than buying a bond of a western country, and the 3% return is just not worth it when said bond would provide a similar return.
For binary contract markets, when the midpoint between the bid and the ask is less than 0.1 or greater than 0.9, you need to have orders both above and under it to earn daily liquidity rewards. This creates an incentive to place bid orders even if you think the market cannot resolve positive.
Polymarket has a lot of reputation to lose by incorrectly resolving this market
I imagine that having a “Jesus returns this year” question at 3% affirmative is also not very good for their reputation.
Hypothetical conversation:
"You gotta prepare for the second coming, man, it's this year!"
"It is not. Stop telling me that."
"It is! The signs are all there! Do you even portents, bro?"
"I told you it's not happening."
"We work at a prediction market. I'll buy yes. It's happening."
"No you won't. You know it isn't."
"I so will, make the market."
"This is stupid, I'm eating lunch."
"Let's make the market, dude."
"Ugh, fine, it's going to zero so fast."
"More money for me!"
Without assigning my own normative judgment, isn't this just standard trader behavior/professional ethics? It seems simple enough to justify thus:
Two parties want to make a bet (trade). I create a platform to facilitate such a bet (trade). Both parties are better off by their own lights after such a trade. I helped them do something that makes them each happier, and make a healthy profit doing so. As long as I'm not doing something otherwise underhanded/unethical, what's the problem here?
I don't think it's conceptually any different from e.g. offering memecoins on your crypto exchange, or (an atheist) selling religious texts on Amazon.
Oh, I don't think it was at all morally bad for Polymarket to make this market -- just not strategic, from the standpoint of having people take them seriously.
How serious are they about respectability and people taking them seriously in the short term vs selfishly wanting more money and altruistically just wanting to make prediction markets more popular?
Seeing this, I update toward a heuristic of "all polymarket variation within 4 percentage points are noise".
41I think the math works out to be that the variation is much more extreme when you get to much more extreme probabilities. Going from 4% to 8% is 2x profits, but going from 50% to 58% is only 1.16x profits.
This also misses the time value of money; fixed heuristics don't capture that the effect is more pronounced the further out the settlement date is (already prediction markets with 2030s settlement dates)
I think this would be fixed if they didn't force yes and no to add to 100%. If they have the same interest rate, the price ratio would reveal the true odds.
The problem is you're forcing a one year loan for $1 to add up to $1 in the present. It should add up to less than $1.
[Time Value of Money] The Yes people are betting that, later this year, their counterparties (the No betters) will want cash (to bet on other markets), and so will sell out of their No positions at a higher price.
How does this strategy compare to shorting bonds? Both have the same payoff structure (they make money if the discount rate goes up) but it's not clear to me which is a better deal. I suppose it depends on whether you expect Polymarket investors to have especially high demand for cash.
Yeah, I think the time value of Polymarket cash doesn't track the time value of money in the global economy especially closely:
If Polymarket cash were completely fungible with regular cash, you'd expect the Jesus market to reflect the overall interest rate of the economy. In practice, though, getting money into Polymarket is kind of annoying (you need crypto) and illegal for Americans. Plus, it takes a few days, and trade opportunities often evaporate in a matter of minutes or hours! And that's not to mention the regulatory uncertainty: maybe the US government will freeze Polymarket's assets and traders won't be able to get their money out?
And so it's not unreasonable to have opinions on the future time value of Polymarket cash that differs substantially from your opinions on the future time value of money.
doesn't track the time value of money in the global economy
(Ignoring liquidity rewards) Therefore, other platform users have access to similar lucrative return rates (Polymarket and Manifold fund liquidity without meaningful revenue) as those fireselling, so best returns may be ignoring obvious longterm markets altogether:
https://manifold.markets/Nu%C3%B1oSempere/this-question-will-resolve-positive-4a418ad86de3#jdUj58EdDXBbF8ZNyXaT
If enough people want to sell their "No" shares, the "Yes" holders may be able to sell out at an elevated price
I'm not familiar with how Polymarket works, so I guess that's why I don't understand who would want to buy the shares of the "Yes" holders. Could you please explain?
Sure! Let's say that we make a trade I buy a share of "Jesus will return in 2025" from you for 3 cents. Here's what that means in practice:
- I give 3 cents to Polymarket, to hold until the end of the year. (In return, Polymarket gives me a "yes" share, which will be worth 100 cents if Jesus returns and 0 cents if he doesn't return.) You give 97 cents to Polymarket. (In return, Polymarket gives you a "no" share, which will be worth 100 cents if Jesus does not return and 0 cents if he does return.)
- If Jesus does not return by the end of the year, you get all 100 of those cents. If he returns, I get all 100 cents.
Now, let's say that we've made this trade. Fast forward to November, and you're interested in betting on the New York mayoral election. Maybe you'd like to buy shares of "Zohran Mamdani will win the mayoral election" because it's trading for 70 cents, but you think he's 85% likely to win, or something. You really wish you had those 97 cents that you gave to Polymarket to hold until the end of the year, because you can make a much more profitable (in expectation) bet now!
So you return to the Jesus market, to sell your "no" share. You paid 97 cents for it, but really, you're willing to sell it for 95 cents now. You'll eat that 2-cent loss, because at least then you'll get to place that really good bet on the New York market, where you think you're profiting a lot more in expectation. Meanwhile, I'm happy to be on the other end of that trade: I bought "Jesus will return" for 3 cents, and now I get to sell out of my position for 5 cents (by trading with you), earning me a guaranteed 2 cents.
(There's some details I'm eliding: basically, a "yes" share and a "no" share "cancel out" to 100 cents, so if you hold both 1 yes share and 1 no share, Polymarket internally just credits you 100 cents, so it's as if you get a dollar back and don't hold any shares at all. I didn't want to get into that because it's a slightly confusing detail.)
Does that make sense?
It's interesting to learn how how the dollar amount being placed on the bet was turned into percentage points. I was confused about that. Thanks for making it clear!
Just to make sure that I understand: does it make sense to describe the situation in terms of what I would call a hot potato dynamic?
In the beginning, the "No" shares are a cold potato, because most people don't believe that Jesus will actually return.
But the incentive for people to buy "Yes" shares is their expectation that the people holding the "No" shares will sell their position later for money to place on other bets.
When the "No" shares are sold, they are sold for less because those who sell them expect a better profit the mayoral race than from the prophesy of Jesus returning.
So the people who bought "Yes" shares in the beginning can make a profit for a while - the potato is hot. People might even buy "Yes" shares because they expect more people to sell "No" shares in the future.
But at some point people will stop selling "No" shares. And those holding the "Yes" shares won't be able squeeze anymore profit - the potato has now cooled, as it were.
"The Incorrect Resolution hypothesis rings false because, while there's some chance of an incorrect resolution, it's really unlikely to be as high as 3%." It was indeed at least 5% of incorrect resolutions during my experience on polymarket.
https://www.trustpilot.com/review/polymarket.com They have already lost their reputation. The decisive majority of UMA tokens is held by 4-5 wallets, which makes it even more centralised system, than private companies' boards. And nothing stops whale wallets from participating in markets, and then participating in resolving the question. In addition to that UMA system pays out for unanimity: if you are a small UMA holder and you know/ can guess the whales' sentiment, you benefit from voting the same as them, not for the true option.
From the top of my head, they resolved to Yes a market "will trump issue a token" prematurely based on him talking (making advertisement?) about some irrelevant cryptocurrency. (Premature resolutions lead to unfair flow of money and quicker unlock from the market). Another case of misresolution: they treated Israel-Lebanon negotiations as a peace treaty between Israel-Hezbolla.
Oh, UMA could totally mis-resolve this one. But my contention is that Polymarket would overrule such a resolution.
1The Incorrect Resolution hypothesis rings false because, while there's some chance of an incorrect resolution, it's really unlikely to be as high as 3%. Polymarket has a lot of reputation to lose by incorrectly resolving this market, and would almost certainly override its consensus-based resolution mechanism if it came to that.
I think historically UMA oracle token holder profiteers have misresolved some markets without Polymarket overriding.
I would guess profiteers would focus on markets with more liquidity. I would guess that the base rate so far has been much less than 3%, but maybe there are lots of resolved markets with lower trading volume ('Will Jesus Christ...' has $400K in volume). It does seem like it would be unusually bad for Polymarket if this particular market was misresolved.
It seems not impossible to me for many markets to be misresolved by UMA in one big attack, but I don't know how UMA and Polymarket work.
I'm enjoying envisaging this as an alternative explanation for the classic Lizardman's Constant, which is a smidge larger than 3% but then, in cheap talk markets you have less on the line, so…
[True Believers] Maybe these people really believe that there's a 3% chance that Christ will return this year!
If you are a True Believer it's more likely you believe someone would be sent to hell for gambling on sacred matters. True Believers would never bet that Jesus Christ will return in any specific date. There is one bible passage that Jesus says in Matthew 24:36:
But of that day and hour no one knows, not even the angels of heaven, but My Father only.
If someone truly believes Jesus’ words, then they think the timing of Jesus' return is unknowable.
The True Believers hypothesis rings false because that would be a frankly ridiculous belief to hold. Sometimes people profess ridiculous things, but very few of them put their money where their mouth is on prediction markets.
I don't know what the Yes people have in mind, but certainly they are not Christians.
Seems polymarket rewards volatile rapid trades and that perverse incentive is the real culprit, and the crypto enthusiasts have no horse in the race at all.
This is not a great No bet at current odds even if you are certain the event will not happen. The market resolves Dec 31, which means that you have to lock up your cash for about 9 months for about a 3% rate of return. The best CDs are currently paying around 4-4.5% for 6mo-1y terms. So even for people who bought No at 96% it seems like a bad trade, since you're getting less than the effective risk-free rate, and you're not getting compensated for the additional idiosyncratic risk (e.g. Polymarket resolves to yes because shenanigans, polymarket gets hacked, etc).
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